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A Look At Federal Student Loans

The best thing to do is to get a Federal student loan. Federal loans are readily available to students. Private loans are more expensive to pay back and are not recommended if they can be avoided.

The reason Federal student loans are so available is because graduates of college will usually make a lot more money than other people. This gives the lenders confidence that their money will be repaid.

Some of the most positive aspects of Federal student loans are: lower interest rates, options to postpone payments, longer repayment terms and easier credit requirements. Eligibility for some of these loans is need based, while others are not.

The most common Federal student loans are listed below:

Federal Perkins Loans are a low-interest loan available to students who have exceptional financial need, based on the information provided on their FAFSA. Undergraduates can borrow up to $4,500 per year, while graduate students can borrow up to $6,000 a year.

Federal Stafford Loans are available to undergraduate and graduate students. The loan amounts depend on a student’s year in school and whether they are financially dependent or independent

These loans can be subsidized or unsubsidized. Financial need determines which type a student is eligible for. Subsidized loans are based on financial need. The government pays the interest while the student is in school, in deferment, and in their grace period.

Unsubsidized loans are available to all students, regardless of income. The student is responsible for all interest.

Federal PLUS loans (Parent Loan for Undergraduate Students) are a low-interest education loan for parents. Each year, parents can borrow up to the cost of attendance, minus other financial aid received such as scholarships, grants, student loans, etc.

The PLUS loan is not based on financial need. Qualified applicants must pass a credit check.

At Look At Private Student Loans

Private loans are designed to supplement Federal loan programs and are available from schools, banks, credit unions, and education loan organizations. They are usually used to cover education costs that cannot be met by Federal aid.

Terms for private loans very according to the lender and your credit history. Remember you are asking them to loan you money. And keep these things in mind as you consider taking out a private loan.

Private lenders have credit requirements and you many need a co-signer. If you do need a co-signer the co-signer will need to meet the same requirements, if not even higher requirements.

The lender determines the interest rates and fees according to your credit history (and your co-signer’s) and their rules of their individual company. They are not run nor governed by the Federal Government.

Private lenders have control of the money they are loaning to you and may not offer deferment options.

Private loan programs may offer the borrower benefits, such as interest rate discounts, rebates and other incentives. One thing is for sure; all lenders want your business because they make money that way.

No matter what type of loan you take out, be conservative and borrow wisely. All loans have to be repaid rather they are Federal or private loans.

Just What Is The Sallie Mae Organization?

The Sallie Mae Fund sponsors several scholarship programs and supports hundreds of other college scholarships. All of their programs are based on financial need. The fund trys to bridge the dollar gap when no one else can.

With an estimated $3 billion in private scholarships awarded nationally each year, they try to send the message that money is available to those who make the effort to work hard, apply themselves and then seek for the scholarships.

Since 2001, The Sallie Mae Fund awarded $10 million in scholarships to help 4,000 students enroll in college.

What Are The Different Scholarships That They Offer?

Unmet Need Scholarship

This is open to families with an income of $30,000 or less. This fund is meant to aid students that fall more than $1,000 short in students’ needs. This scholarship program is open to U.S. citizens who are accepted as full-time students and have a minimum 2.5 GPA and have a financial need. Scholarships range from $1,000 to $3,800.

American Dream Scholarship

This is a partner with the United Negro College Fund and is open to African Americans with financial need. Applicants must be U.S. citizens with a minimum 2.5 GPA, must meet the Pell Grant eligibility criteria, and enrolled full-time at an accredited institution. Scholarships range from $500 to $5,000.

Sallie Mae 911 Education Fund

This fund was created in response to the terrorist attacks on September 11, 2001. The program is open to children of those who were killed or permanently disabled due to the attack. The students must be enrolled full-time at an accredited institution. Scholarships are $2,500 per student per year and are renewed on an annual basis subject to academic progress.

First In My Family Scholarship

This scholarship was developed in partnership with the Hispanic College Fund. This fund offers scholarships to Hispanic students who are first in their family to attend college and have a financial need. It is opened to U.S. Hispanics, enrolled full-time, hold a 3.0 GPA and plan to attend an accredited institution. Scholarships range from $500 to $5,000.

Community College Transfer Scholarship

This scholarship program is in partnership with the Hispanic Scholarship Fund. It is open to Hispanic students transferring from a community college to an accredited four-year institution. They must be a U.S. citizen and hold a 3.0 GPA. Awards amounts range from $1,000 to $2,500.

“Writers of Passage” Scholarship

Here the partnership is with the National Association for Equal Opportunity in Higher Education. This program is an essay competition that awards four winning students from a Historically Black College, University or predominantly black college with a $5,000 scholarship. Schools that the winners are attending will also receive a $20,000 grant!

In addition, The Sallie Mae Fund awards $250 to $1,000 scholarships to future college students at each of its free, nationwide “Paying for College” workshops. Other programs that they sponsor are Dollars for Doers, where their own employees volunteer a minimum of 40 hours per year and may apply for a $250 grant to go to The Sallie Mae Fund organization.

There are many additional programs that are on going inside of this wonderful company (The Matching Gifts), (The Bus Tour), (Building Hope) that are unknown by many. However, appreciated by countless people that would not have the opportunity that has been given to them otherwise.

Start To Explore Your Options

Many students will be heading off to school and will be in need of many things. The first year of college brings great surprises, newfound freedom and great financial need. If you are a student or a parent of one, it is important for you to understand your education-funding options. Students will turn to federal or private loans to finance their goals.

Comparing The Two Loans

First, we shall examine the eligibility between the two. The requirements for federal loans offer a numbers of differences when compared to the private loans. The Federal Stafford Loans do not require any credit check. Requesting a private loan would be very difficult to acquire without having a past credit check.

To be eligible for a federal loan, you must be a U.S. citizen/national, or eligible noncitizen. Some private loans may offer options to international students who do not qualify for federal loans.

Also, private loans are credit-based. This means that your eligibility is determined by your credit rating. Most private lenders will allow you to use a co-signer or co-borrower to qualify for a private loan showing proof of income before lending you the money.

Where Does The Money Come From For Each Loan

One of the largest differences between the private and federal loans is where the money comes from. With a federal loan, the loans are part of one of two federal programs. The most common federal loan is a Stafford Loan; these may be issued directly from the government to the student or from a lender such as a bank or credit union belonging to the Federal Family Education Program.

This program is known as FFELP. Also, Stafford Loans may be subsidized or unsubsidized. If you are eligible for a subsidized Stafford Loan, the government will pay the interest while you are in school. These loans are usually given to students who prove financial need.

If you receive an unsubsidized Stafford Loan, you will be responsible for paying all of the interest.

Lenders such as banks and credit unions issue private education loans. The federal government regulates them, but there are no guarantees against default. These loans are provided and guaranteed by private lenders and guarantors. Private loan programs will vary by lender.

Let’s Look At Interest Rates And Repayment Plans

Private loans will have a higher interest rate than federal loans and the interest rate for private loans will always be variable. If you need a co-signer for your loan their credit score will have an effect on the interest rate. Private lenders start at a prime interest and then add a margin.

Federal loans are better when they come to interest rates. The interest rate on the Federal Stafford and the Federal Plus Loans is fixed, not variable. This helps during periods when interest rates rise high.

Repayment plans also differ. Private lenders may not offer benefits such as forbearance or deferment in times of hardship. They also may not grant a grace period, and some private lenders require the interest payment to be made while the student is in school.

However, most lenders do have repayment options to allow deferment of the principal until the student graduates. The federal government has put safety nets into place if you are faced with hardships where you can’t make your loan payments. You can apply for deferment, forbearance, and/or temporarily postponement to reduce your monthly payments.

Repayment plans differ by loan providers for both federal and private loans. Make sure your lender provides you with the options prior to signing any paper work. Also depending on your provider, both federal student loans and private loans may be eligible for different incentive or discounts.

Explore what the many providers offer. The best advise is to spend time in researching a large number of loans and what they offer and what you qualify for. You will be repaying your lender for many years to come, so choose your lender carefully and ask many questions.

Reasons for the growth in student loans.

While there is high concern about rising student debt levels recent information shows that much of the increased borrowing took place due to the expansion of the loan programs rather than the growth in college costs. Many of the new student loans came from middle and upper-income families.

What has led to this increased use of student loans? And is the rising indebtedness hurting the students’ futures? Let’s take a look at three examples why the borrowing has increased.

First, student’s financial need has increased as educational costs have grown and more of this is met by loans. Second, increases in federal grant aid have not kept up with rising educational costs thus, widening the gap between college and compelled students who need the aid. Third, increases in the maximum of loan limits grew and the ease of borrowing have allowed more students to receive loans.

Examining the spread of cost.

Growth in educational costs does not explain the increase in the borrowing. Amounts grew much faster than upper-income students’ showed financial need. Financial need is defined as the difference between students’ and families’ total educational costs and the estimated amounts they can afford.

These results seem to tell us that much of the growth in borrowing can be credited to the changes made in the Higher Education Act, the federal law that governs the financial aid programs. This law increased the annual and maximum amounts students could borrow.

Most of this growth has been through the Stafford Unsubsidized Loan program. The amount of unsubsidized loans more than tripled, rising from $4.1 billion to $12.9 billion.

At the same time, subsidized loans grew 40 percent from $12.5 billion to $17.5 billion. Now students may receive unsubsidized loans regardless of their families’ incomes.

Middle and upper-income families, who might not have been qualified before for need-based Stafford Subsidized Loans especially, became eligible to receive these loans due to the changes made under the Higher Education Act.

What the present loan repayment represents.

For most students borrowing is a wise investment because it allows them to obtain a higher education and increases their chances of success in employment and wages.

And these borrowers who received bachelor’s degrees from four year public colleges and universities, their monthly loan repayments are approximately 4.4 percent of their starting salaries.

Additional examples are computer science majors, their monthly repayment would be 4.5 percent of their wages, and education majors would be 8 percent of their starting salaries. Students from medical, dental and other professional degree programs face debts of far over $100,000 or more.

The worse picture of all is the student who leaves after acquiring the loan without obtaining a bachelors’ degree. They often end up with lower incomes and yet still have to repay their loans, which makes it so much more difficult.

The financial aid office or the lender determines the eligibility. But only YOU can determine how much money you will really need to borrow. As part of your financial aid package you will be offered a maximum amount you can borrow. Here is where one of the main problems enters.

Most students will take the entire package, increasing all fees, interests rates and the amount of return payments due monthly. Thus, the need for additional loans will also go up. And the repayment obligation for these students becomes much more difficult.

As a good rule, accept the least amount that you can get by on from any student loan. And pay it back as quickly as you can. Make sure payments are on time and make any small additional payments if possible.

A Federal Perkins Loan Program is a long-term loan with a low interest of 5 percent to students with exceptional financial need. The school determines which students have the greatest need. The loan is for both undergraduate and graduate students.

Under the program, this type of loan is made through a school’s financial aid office. The school acts as the lender, and the loan is made with government funds. The U.S. Department of Education provides a programmed amount of funding to the school and the school adds some of its own funds for the loans. In order to apply for this program, you must fill out and submit the Free Application for Federal Student Aid (FAFSA).

You also must meet the following requirements:

• Enrollment in an eligible school at least half-time in a degree program

• U.S. citizenship, permanent residency, or eligible non-citizen status

• Satisfactory academic progress

• No unresolved defaults or overpayments owed on Title IV education loans and grants

• Satisfaction of all Selective Service requirements

If you are an undergraduate student, you may borrow up to $4,000 a year with a total maximum of $20,000 borrowed during your undergraduate years. If you are a graduate student or in your professional studies, you may borrow up to $6,000 a year and a total amount of $40,00 borrowed in both undergraduate and graduate schools.

The actual amount that you will receive depends upon your financial need and the school’s level of funding. It is best to check with your school to find out more in that area.

You will receive your loan through your school. The school will either give you a check or credit your personal student account. Most likely the loan will be divided into two payments, unless the loan is for a very small amount.

Unlike other federal student loans, Perkins loan borrowers do not have to pay origination or insurance fees. Perkins loans share many same characteristics of the Stafford loans. However, the two mains differences are no fees and a longer grace period.

Payments on your Perkins loan begin nine months after you graduate or leave school. If you serve in the military, repayment assistance may be available. How much you pay back each month will depend on how much you borrowed and how long you have to repay your loan.

You may be allowed up to ten years to repay the loan in full. Under certain circumstances you can receive a deferment on your loan. During a deferment, no payment is required and interest does not accrue.

A Perkins loan can also be canceled under certain circumstances, such as your death or a total and permanent disability. You also might qualify for having your loan canceled because of the type of work you have chosen once you leave school.

There are often several unanswered questions such as: Can I postpone my loan payment by receiving a deferment of what type, what will be the exact amount of my monthly repayment bill, what if I need to stop school for awhile due to family issues, etc.? Check with your college or career school you plan to attend for their personal answers.